As the internet industry grows amid rapid digitization trends, high inflation and back-to-back interest rate hikes could hamper its optimal performance in the short-term. As such, internet stocks Farfetch (FTCH), ContextLogic (WISH), and Groupon (GRPN) might be best avoided in 2023 given their weak fundamentals. Continue reading.
In the midst of rapid digitization, the importance of the Internet industry should not be underestimated. Internet of Things (IoT) market growth is driven by e-commerce platforms which are growing significantly owing to shopping convenience and smartphone penetration.
While online retail sales increased in January 2023, high prices and consecutive hikes in interest rates could hamper the growth of the sector.
Inflation rose 0.5% in January after rising 0.1% in December, and the CPI rose 6.4% from the same period in 2022. Economists polled by Dow Jones had forecast increases of 0.4% or 6.2% calculated. In addition, Deutsche Bank raised its US forward rate forecast to 5.6% from 5.1%.
In addition, 68% of American adults said they felt financially confident in Q4 2022, up from 79% in Q4 2021. The decline in consumer financial confidence is expected to impact aggregate demand, which will bode well for the industry may not bode well.
So it might be prudent to avoid fundamentally weak internet stocks Farfetch Limited (FTCH), ContextLogic Inc. (WISH), and Groupon, Inc. (GRPN) in 2023.
Farfetch Limited (FTCH)
Headquartered in London, UK, FTCH and its subsidiaries operate an online marketplace for luxury fashion items in the United States, United Kingdom and internationally. Its segments are Digital Platform; brand platform; and in the store.
FTCH’s expected P/E of 31.97x is 102.4% higher than the industry average of 15.80x. Its forward price/book of 3.67x is 25.7% higher than the industry average of 2.92x.
Its negative 12-month EBITDA and leveraged FCF margins of 16.23% and 5.26% are lower than industry averages of 11.09% and 1.36%.
FTCH’s branded platform revenue was $161.84 million for the third quarter ended September 30, 2022, down 2.1% year over year. Adjusted EBITDA was a negative $4.11 million compared to $5.31 million in the previous period. Also, adjusted loss per share rose 71.4% year over year to $0.24.
FTCH revenue is expected to decline 6.3% year over year to $623.80 million for the yet to be reported quarter ended December 2022. Earnings per share are expected to decline significantly year over year to minus $0.47 for the same period. Over the past year, the stock lost 71.6% to close the last trading session at $5.77.
FTCH’s POWR ratings reflect the poor outlook. It has an overall grade of F, which equates to a strong sale. The POWR Ratings evaluate stocks based on 118 different factors, each with its own weighting.
Also, the stock has an F grade for growth and a D for value, stability, and sentiment. FTCH is ranked 60th out of 61 stocks in the internet industry with an F rating. Click here to access the additional POWR ratings for FTCH (Momentum and Quality).
ContextLogic Inc. (WISH)
WISH operates as a mobile e-commerce company in Europe, North America, South America and internationally. The company operates Wish, an e-commerce platform that connects users with merchants.
WISH’s negative trailing EBITDA and net income margins of 41.52% and 45.05% compare to industry averages of 11.09% and 4.81%.
WISH revenue was $125 million for the third quarter ended September 30, 2022, down 66% year over year. Adjusted EBITDA was minus $95 million compared to minus $30 million in the same period last year. Additionally, its loss per share rose 80% year over year to $0.18.
Analysts expect WISH revenue and EPS to decline 47.4% and 100% year-on-year to $152.02 million and minus $0.18 for the quarter to be reported through December 2022. Over the past year, the stock is down 64.3% to close the last trading session at $0.95.
WISH’s overall F rating equates to a strong sell in our proprietary rating system. Also, the stock has an F for stability and a D for growth and quality. It is ranked 58th in the same industry.
Here you get the additional POWR ratings for WISH (Value, Momentum and Sentiment).
Groupon, Inc. (GRPN)
GRPN and its subsidiaries operate a marketplace that connects consumers with merchants. It operates through two segments, North America and International.
GRPN’s price-to-book multiple of 3.27x is 13.3% above the industry average of 2.89x.
GRPN’s negative trailing EBITDA and net income margins of 8.20% and 22.69% are lower than the industry averages of 11.09% and 4.81%.
GRPN’s total revenue for the third quarter ended September 30, 2022 was $144.39 million, down 32.6% year over year. Non-GAAP net loss was $20.64 million compared to income of $12.53 million in the prior year period while non-GAAP loss per share was $0.68 with earnings per share of $0.38 in the year-ago period.
Street expects GRPN’s revenue to decline 27.6% year over year to $161.55 million for the quarter to be reported through December 2022. Earnings per share for the same period are expected to fall 322.2% year over year to minus $0.40. It missed EPS estimates in three out of four trailing quarters. Over the past year, the stock is down 71.2% to close the last trading session at $7.75.
GRPN’s POWR ratings are consistent with this bleak outlook. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system. In addition, the stock has an F rating for stability and sentiment and a D rating for growth and momentum.
It is ranked 52nd in the same industry. We also rated GRPN for value and quality. Click here to access all of GRPN’s reviews.
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FTCH shares were flat in premarket trading on Thursday. Year-to-date, FTCH is up 21.99% versus an 8.25% gain in the benchmark S&P 500 over the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentary.
The post 3 Bear Market Internet Stocks Investors Should Avoid in 2023 appeared first on StockNews.com
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